Delta Fires Back Over DOT’s Aeromexico Rejection and Allegiant Takes Delta’s Side

Allegiant, Delta, Government Regulation

When the Department of Transportation (DOT) announced it would end the antitrust immunity (ATI) given to Delta and Aeromexico for their joint venture due to the Mexican government failing to honor the open skies agreement, it was never a doubt that Delta would angrily counter. The response was filed last week, and — spoiler alert — Delta is pissed off. And — another spoiler alert — Allegiant agrees with Delta.

In its 105-page filing — half of which is an economic analysis of how bad it would be for the joint venture to be disbanded — the airline rakes DOT over the coals, saying that this order if made final would “cause severe harm to consumers, competition, communities, and the economy” using an “arbitrary, misdirected, discriminatory, and ineffectual approach” while also being “fatally flawed.” It’s time to get that popcorn bucket out.

The basic argument laid out by Delta is that ending ATI would punish the airlines, eliminate all of the jobs and economic impact provided by the joint venture, fail to alter the Mexican government’s stance, and undeniably make the border crisis worse. Ok, that last one isn’t true, but that’s what I’d say if I was trying to get the government to overturn itself.

Delta lays out that the DOT’s two main issues are that all cargo service has been forced to leave Mexico City/MEX and slots have been reduced at MEX overall. But these issues “cannot plausibly be ascribed to the [joint venture] or the [joint venture] Partners.” If the slots don’t fit, you must acquit.

Forget that this flies in the face of longstanding DOT policy that a functioning Open Skies agreement is a basic requirement for allowing ATI and joint ventures. Oh wait, no, don’t forget that. American was more than happy to file that argument, presumably just to stick a needle in Delta’s eye. It can’t care all that much, but if it hurts Delta, then that’s a win. So how can Delta really make this argument?

It leans heavily on the dire results that may or may not actually occur. The filing says that if the joint venture is unwound, nearly two dozen routes between the US and Mexico would be “at risk of cancellation and capacity would be reduced, with large narrowbody aircraft to be replaced with smaller aircraft on at least ten other routes.” It also says fares would “certainly increase,” which is a bold stand since airlines really cann’t say anything about future pricing actions with certainty. But hey, Delta is trying to make this sound as bad as possible. And it does a good job.

If this is Delta’s stance, is it suggesting that the US should just let Mexico get away with failing to honor the Open Skies agreement? Sort of. It doesn’t necessarily agree that the agreement is being violated. But it does offer some of what it calls “countermeasures” that DOT should use instead as required by the various agreements:

  • engage in continued consultations with Mexico
  • begin arbitration with Mexico
  • impose schedule filing requirements on all Mexican carriers serving the US and restrict their schedules if needed

Delta says this will be more likely to get Mexico to stop messing around. Just removing ATI from the Delta/Aeromexico deal won’t be nearly as effective.

All of this, however, is just trying to set the table for Delta’s main legal argument,which is that the order is “fatally flawed” under the Administrative Procedure Act (APA). That could be the most boring name of an act ever, but it apparently is Delta’s proposed key to victory.

The APA — not to be confused with American’s pilots union — apparently requires the court to “hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Delta says this is being violated, and it goes on a lengthy tirade about just how it’s a problem, saying that the DOT is making up random rules to judge the joint venture without even analyzing the application properly, doesn’t provide any facts on how the Open Skies agreement has been violated, and fails to show that US airlines have been harmed.

Some of it just seems silly. For example, Delta argues that when Mexico forced all cargo carriers to leave MEX and use the new airport in Santa Lucia, DOT failed to show “why this decree is problematic.” In this sense, the airline seems to be arguing more against the contents of the order versus the actual issue. Of course those cargo carriers forced to leave the primary airport have been harmed. But DOT didn’t explain why in the order, so… booo on you DOT. This kind of thing can be cleaned up and hardly seems worth arguing. Much of what Delta says seems to be about administrative procedure and wouldn’t necessarily result in a different outcome, but it can’t hurt to try every defense possible.

There are plenty of other points that make the argument that DOT is reaching the wrong conclusion. Like I said, it’s a 105-page document, so if you want to see Delta’s well-argued reasoning, I’d recommend a read, but it certainly provides something to think about.

Delta has found itself with an unlikely ally in this fight… Allegiant. See, Allegiant has been trying to create a joint venture with Viva Aerobus, but DOT won’t even consider it right now because of the issues with Mexico. So maybe it isn’t all that surprising to hear Allegiant say that Delta and Aeromexico should be able to keep ATI. Allegiant really just wants its own case heard.

Allegiant’s argument will sound very familiar. It says the current agreement “has resulted in open access to the transborder market.” The issues “at a single airport… do not call into question in any material way the actual access enjoyed….”

This, however, is really just Allegiant saying that DOT should rule on this and not kick the can. If DOT delays a decision until later, then Delta/Aeromexico can continue their joint venture. Allegiant and Viva will still be in a holding pattern, and that’s the worst outcome as far as Allegiant is concerned. If they make this order final now and deny ATI, that means Allegiant and Viva are also probably dead, but at least there’s a unified fight to be had. If DOT reverses course and approves ATI for an extended period, that should bolster Allegiant’s case to finally get its Viva deal pushed through.

Now, we wait. Will DOT have a change of heart? I generally assume that no, it won’t. But we will find out soon enough whether this order goes final. Then all we can do is hope that the Mexican government will come to the table and actually do something. I wouldn’t hold my breath.

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14 comments on “Delta Fires Back Over DOT’s Aeromexico Rejection and Allegiant Takes Delta’s Side

  1. So if Mexico decides that all Cargo planes need to move to another airport, say NLU, due to pollution and/or noise, does that immediately go against Open Skies? Why is DOT so hawkish on this? Looks like ‘same same but different’ for what happened in The Netherlands with AMS with potential noise abatement measures roughly 6 months ago.

    1. The DOT is hawkish on this because Mexico is fairly blatantly violating the Open Skies treaty – and so was the Netherlands, which is why they backed off that plan.

      The US-Mexico treaty has this clause:

      “ARTICLE 11: Fair Competition…

      …2. Each Party shall allow each airline to determine the frequency and capacity of the international air transportation it offers based upon commercial considerations in the marketplace. Consistent with this right, neither Party shall unilaterally limit the volume of traffic, frequency or regularity of service, or the aircraft type or types operated by the airlines of the other Party, except as may be required for customs, technical, operational, or environmental reasons under uniform conditions consistent with Article 15 of the Convention.”

      In other words, Mexico can decide that all Cargo flights might need to leave MEX, but they need to follow the rules laid out by ICAO (“the Convention”). Same thing with slots.

      As far as Open Skies goes, there are valid ways to do this, and invalid ways to do it.

  2. What a tangled web we weave in the world of aviation. On the surface it looks as if Delta may have a point all be it a hyperbolic one, but we’ll see if their cries are herd & the government will change course.

    BTW, last night’s episode of “Last Week Tonight” focused on Boeing & it’s numerous problems. The episode will be released on YouTube Thursday if you missed it.

  3. Reminder that this wouldn’t be an issue had Texcoco not been cancelled.

    Just another way airlines get hurt by poor policy.

  4. DOT and the gov throwing their weight around, but overall to the detriment of fliers.

    For those who haven’t seen it, JetBlue has just given up on appealing the block of their purchase of NK.

    1. Yes, absolutely agreed. And, generally when a US government agency enters the fray, it is to the detriment of the consumer.
      If the DOT had an issue with the Mexican government not ‘honoring’ the Open Skies Agreement, then it should figure out a way to enforce it (perhaps per Delta’s suggestions), or walk.

      1. This IS their way to enforce it! “Figure out a way” is easy to say when you’re not the one who has to do the figuring.

  5. A number of these comments are spot on. The DOT could have used a chisel instead of a hammer and highlights its own hypocrisy by rejecting the AM/DL JV even though the same rules for entry which it expects of MEX are not being practiced at Haneda or Heathrow.

    The Mexican government needs to explain what they are doing but the notion that the US only allows JVs where the is open access to major airports under the JV is patently false.

    1. I can guarantee you that if Japan or the UK made the same unilateral decisions at HND or LHR that Mexico has at MEX, the DOT would have the same reaction. All you need is to see the reaction from the US Government (both the DOT and the Department of State) to the Netherlands and their attempts to bypass the very clear rules and procedures required by the bilateral treaties.

      The criteria for anti-trust immunity is not “open access to major airports,” and it never has been. Open Skies treaties between the countries are a prerequisite, the other elements are assessed on a case by case basis. Most importantly, however, the order of operations matters here: The US granted ATI to the various JVs to the UK and Japan knowing exactly what the restrictions on key airports like LHR and HND are. The issue here is that Mexico is trying to change those rules after the fact and restrict access that was previously available when the treaty was signed – which the treaty expressly forbids.

      1. the basis for allowing a joint venture is to ensure there is a competitive environment. That has largely been accomplished by ensuring access for competitors.
        HND and LHR are examples of airports where there is no capacity for competitors to add service.

        The issue is simply that Mexico, like the Netherlands, tried to change the rules after the JV was granted. Unlike with AMS where B6 argued it could not get slots, there is no evidence that any US carriers were harmed by MEX’ changes.

        There simply is no basis for terminating the JV. There is a legitimate basis for telling Mexico it must tell the US how it allocates slots.

        1. While foreign carriers were exempt in the most recent round of reductions at MEX (52 to 43 ops per hour), they were not exempt in prior rounds (61 to 52, implemented after NLU opened). Both AA and UA have 1 less daily flight to MEX this summer compared to before COVID when NLU wasn’t open. Coincidence?

          While I can only speculate why both AA and UA reduced their flights in a slotted airport surrounded by controversy, I would bet there is more going on behind the scenes that made the DOT rule the way they did.

        2. “HND and LHR are examples of airports where there is no capacity for competitors to add service.”

          And those factors influence how the DOT addresses each case. For LHR, the DOT has required remedy slots for certain markets, for example. For HND, the DOT has clearly favored the non-JV carriers in their allocation of slots.

          “Unlike with AMS where B6 argued it could not get slots, there is no evidence that any US carriers were harmed by MEX’ changes.”

          Incorrect. They’ve banned all-cargo flights, many of which are operated by US carriers. And previous slot reductions have impacted US carriers as well.

          “There simply is no basis for terminating the JV. There is a legitimate basis for telling Mexico it must tell the US how it allocates slots.”

          This is simple: the Joint Venture requires the various airlines and the two countries each uphold their part of the deal. When one party does not hold up their end of the deal, then the whole thing falls apart. Everyone agrees that Mexico is not holding up their end of the deal, so the deal is falling apart. Simple.

          Tellingly, Delta isn’t really disputing this, they’re just complaining about legal process.

    2. Of course you’d say that. It’s your precious Delta that’s in the ring fighting. Personally, and mostly thanks to you, I want them to lose. I want the illusion of Delta that’s possessed you and your fellow mind control cultees to be broken.

      1. regardless of the bias and preference that any of us have, the US is still primarily a country built on the rule of law and that was borne out yesterday.

        Since I have noted that Mexico needs to account for their slot usage procedures, I am hardly taking DL’s side unconditionally.

        DL does have a point that there are other means to work through this issue that outright terminating the JV including temporarily suspending the JV until some period of a publicly accessible process has been completed to attempt to ensure open and fair slot usage.

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